Cold winter ahead for EU, Ukraine over Russian gas war

The EU could be caught in the crossfire of Ukraine’s gas gamble with Russia, as a shortfall in supply could mean a cold winter not only for Kiev, but also for the EU, which receives 25 percent of Russian gas via Ukraine.

In October, Ukraine's national oil and gas company Naftogaz said
it had 17 billion cubic meters of gas in storage, but Russia’s
state-owned energy giant Gazprom says it won’t be enough to heat
Ukraine through the winter.

However, Ukraine will require 21.5 billion cubic meters, Deputy
Chief Executive Officer Vitaly Markelov said on Thursday.
Meanwhile, by the time Ukraine's chilly winter comes, storage
will be drained to 14 billion cubic meters, according to
Markelov.

“It’s a catastrophe,” Bloomberg quotes Markelov. “In
these conditions, the winter transit of Russian gas won’t be
possible because storage won’t be enough to compensate for
Ukrainian consumer draw downs.”

Europe imports roughly 25 percent of its gas from Russia, 50
percent of which is currently shipped through Ukraine.

If Ukraine and Russia get
tangled up in a gas war over pricing or politics and the pipes
are turned off, it would be an energy burden for neighboring
European states, as a supply crunch would send prices
soaring.

Transit through Ukraine stood at 61 billion cubic meters in the
first nine months of 2013, while in FY 2012 the figure was at
84.2 billion cubic meters.

Gas tiffs and pricing disputes over advanced payments have caused
major supply disruptions, both in the winters of 2006 and 2009,
leaving many customers without heat.

Naftogaz said it will stop buying gas from Gazprom during 2014
after Gazprom CEO Aleksey Miller demanded Ukraine 'immediately'
pay $882 million of gas debt, threatening to stop
pre-pay deliveries.

President Viktor Yanukovich contradicted Naftogaz’s position,
when on Thursday, he said he “hopes for a compromise” with
Russia.

Yanukovich was in Moscow over the weekend and met with Russian
President Vladimir Putin but no official communiqué was released
on their meeting.

Ukraine complains about high prices for Russian gas, that average
being around $400 per 1,000 cubic meters, one of the highest
prices in Europe. Ukraine currently imports more than half of its
gas from Russia, but both countries are making efforts to cut
down on business.

Russia is building a maze of pipelines to the north and south, to
ensure more reliable supply to European customers, and Ukraine is
wooing foreign companies in joint ventures in shale and offshore
reserves.

'Political deadlock'

EU Foreigner ministers will convene on Monday, November 18 to
decide if they will sponsor Ukraine’s trade association
membership. Before the Vilnius summit on November 28-29, Ukraine
has to prove it's ready to adhere to EU standards.

"Physically, Yulia Tymoshenko has to be out of the country to put
the EU in a position where a positive decision can be made," the
WSJ quoted an unnamed diplomat as saying.

Former Polish Prime Minister, Aleksander Kwasniewski, who chairs
the European Parliament's observation mission in Ukraine, said
November 19 would be the last opportunity for Ukraine’s
parliament to pass a bill freeing Tymoshenko.

Yanukovich has said he has no plans to issue Tymoshenko a pardon,
but if the parliament passes a law that allows her to seek
medical treatment abroad, it could be an ameliorating enough
measure for EU ministers.

EU officials spent the last week in Kiev trying to reach an
agreement over Julia, but the failure to release Tymoshenko could
be a signal Ukraine isn’t ready to improve their shady justice
practices. Tymoshenko was jailed in 2011 for a gas deal she
brokered with Russia in 2009 and is seen as politically
motivated.

Tymoshenko isn’t the only factor that would leave Ukraine in a
political stalemate - rejected by the EU and isolated from
Russia.

Ukraine is nearly bankrupt and may require an expensive ($10-15
billion) IMF bailout almost immediately upon its associate
membership, a liability the EU has to weigh up.

"The EU, perhaps, is bankrupt as well, it’s not in position to
welcome new members and certainly has no largess," Martin
McCauley, an Eastern Europe expert from University of London,
told RT.

"But European Union is in a big trouble economically and
politically it’s a deadlock. Would Germany, the key country,
welcome another EU member, especially one which is bankrupt? The
answer is 'no', in the long term 'yes', but in the short term,
they have doubts," McCauley said.

Europe has been courting Ukraine into an associate trade
membership for the past four years, and has created a
geopolitical battle with Russia, who has punished Ukraine moving
for it's move west in chocolate bans and long delays at the
border.